COLA Increase Watch 2022-2023

What might the 2023 cost of living allowance (COLA) increase look like? It’s too early to tell definitively, but we’ll keep tracking inflation data and other factors that could impact 2023 COLA rates here.

2022 COLA

Back in October, the Social Security Administration announced a 5.9% COLA increase for 2022 for nearly 70 million Social Security and Supplemental Security Income beneficiaries.

It’s the largest increase in 40 years. Soaring inflation, a resurgent economy and other factors contributed to the sizable COLA increase, according to the Social Security Administration.

Inflation increased by half a percent in December to 7% for the year, according to the Consumer Price Index for Urban Wage Earners and Clerical Works (CPI-W).  The U.S. Bureau of Labor Statistics (BLS) compiles the CPI-W. It is the basis for COLA adjustments for military, federal and Social Security recipients.

To calculate yearly COLA adjustments, the Social Security Administration compares third-quarter inflation measurements from July, August and September to the same quarter in the previous year. In short, 2022 inflation data will determine 2023 COLA rates.

2023 COLA (Cost-of-Living Adjustments) Increase Watch

2022 COLA & CPI Summary

• The July CPI-W (292.219) increased over the last 12 months by 9.1%.
• Since July 2021, the all items index increased 8.5% before seasonal adjustment.
  • The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3% in June.
    • The index for used cars and trucks declined 0.4% in July.
    • The food index increased 1.1% in July, and the food at home index increased 1.3% as well.
    • The energy index decreased 4.6% in July, contributing to nearly half of the all items increase.
• The index for all items less food and energy increased 0.3% in July.
• Since July 2021, the index for all items less food and energy increased by 5.9%, the energy index increased 32.9% and the food index increased by 10.9%.

2022 Cola Effective and Payment Dates:

• Retired military veterans, U.S. Department of Veterans Affairs (VA) rates for compensation and pension for disabled veterans and surviving families became effective Dec. 1, 2021. The first checks with the new rates went out on Dec. 31, 2021.
• Social Security benefits became effective with December 2021 benefits, payable in January 2022.
• Federal Supplement Social Security Income and Social Security Disability Insurance (SSDI) payment levels became effective for payments made for January 2022.

2022 COLA (Cost-of-Living Adjustments) Increase Results

Q3 (July-Sept.) 2021 COLA & CPI Summary

• The average Q3 (July-September) CPI-W (268.421) increased year over year by 5.9%.
  • The September CPI-W (269.086) increased year over year by 5.9%.
  • The August CPI-W (268.387) increased year over year by 5.8%.
  • The July CPI-W (267.789) increased Year over Year by roughly 6%.

Veterans’ Compensation Cost-of-Living Adjustment Act of 2021

In October, President Joe Biden signed this year’s cost-of-living increase for veterans, which ties the veterans benefit increases to Social Security COLA increases.

The legislation directed the VA to increases – as of Dec. 1, 2021 – the rates for VA disability, additional compensation for dependents, clothing allowances for certain disabled veterans and Dependency and Indemnity Compensation (DIC) for surviving spouses and children.

While Social Security benefits are automatically adjusted annually to keep pace with inflation, Congress must pass legislation annually to provide COLA for veterans and surviving family members receiving those types of compensation from VA.

Why a COLA Increase May Not Help Social Security Recipients

Senior citizen household spending outpaces COLA because the measurements that determine COLA don’t reflect significant expenses like healthcare and gas.

If Medicare climbs at an equal or higher rate, premiums may offset COLA  increases.

Will Chained CPI Replace CPI-W?

Chained CPI is a new method for measuring inflation and was recently adopted with the new tax plan. Chained CPI dampens inflation by as much as 0.2% to 0.3% which has some advocacy groups concerned that this method will carry over to COLA.

COLA (Cost-of-Living Adjustment) Affects These Programs and Stakeholders:

• Retired Military Veterans
• Disabled Veterans – See VA Disability Rate Tables
• Veterans’ Pension Benefits – Veterans Pension Rate Tables
• Survivor Benefit Annuitants – Survivors’ Pension Rate Tables
• Surviving Families of Veterans – Parents’ Dependency and Indemnity Compensation (DIC) Tables
• Social Security recipients
• Federal Civilian Retirees
• Supplemental Security Income (SSI)
• Social Security Disability Insurance (SSDI)
• Eligibility for Medicare Extra Help and Medicaid
• Federal & State food and housing assistance programs

Quarterly CPI-W for 2021 and 2022

Monthly CPI-W for 2021 and 2022

The table below shows estimated future cost-of-living adjustments (COLAs) as determined by assumptions in the 2021 Trustees Report.

COLA Estimates by Year

The Board of Trustees regards the intermediate estimates as their best estimates.

The CPI-W takes into account eight major spending categories:

• Food and beverages
• Housing
• Apparel
• Transportation
• Medical care
• Recreation
• Education and communication
• Other goods and services

How COLA is Determined

The Cost-of-Living-Adjustment (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W). It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September).

Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January (View the 2022 Military Pay Charts here).

• The COLA increase is only set at the CPI-W if the increase is less than 2%.
• If inflation is between 2 to 3% then COLA is set at 2%.
• If the CPI-W is greater than 3% then COLA is set at 1% below the CPI-W.

COLA Versus Federal Pay Increases

Pay increases for current federal workers and COLA for retired workers often differ because they are based on changes in different economic variables.

Changes in private-sector wages and salaries determine federal Pay increases. The government indexes federal civil service worker pay to private-sector salaries to ensure government pay remains competitive with the private sector.

Cost-of-living adjustments (COLA) ensure that a retiree’s income maintains buying power for the same amount of goods and services every year.